South Korea’s financial regulator, Financial Services Commission, announced today a KRW2.9 trillion ($2.6bn) debt restructuring plan for shipbuilder Daewoo Shipbuilding & Marine Engineering (DSME).
According to the commission, the rescue plan will help DSME repay its debts and prevent a bankruptcy which could have had a damaging impact on the country’s economy.
DSME was facing difficulties repaying KRW940bn in corporate bonds maturing this year, starting with KRW440bn due in April.
Korea Development Bank and Export-Import Bank of Korea will provide the funds via additional loans and swap about KRW1.6 trillion of debt to equity. The loan is conditional upon other creditors and bondholders agreeing to convert around 80 percent of their debt to equity and extending maturities by as much as five years.
The two banks had previously pledged KRW4.2 trillion in new loans and debt-for-equity swaps to help the shipbuilder in 2015.
If stakeholders failed to agree on voluntary debt restructuring, DSME would turn to an alternative solution of so-called ‘pre-packaged plan’ with creditors’ consent. This solution is a kind of court receivership that combines advantages of a court-led rehabilitation process and a creditor-led debt workout. Under the plan, creditors are required to pre-arrange and submit a rescue plan in advance to a company’s filing for court receivership, and then a court would force a swift debt restructuring so that creditors can inject fresh capital in accordance with their plan for rehabilitation.
DSME had an order backlog of 114 vessels worth $34bn as of the end of 2016, which was still the world’s largest. However, new orders last year amounted to just $1.54bn, well short of estimates.
If the plans are successfully implemented, DSME’s financial structure is expected to improve with its debt-to-equity ratio below 250% and borrowing of less than KRW 2 trillion.